However, there are a few stocks that I’m targeting for potential trades come Monday…

You can find them right below…

3 Trades For A Volatile Market

Tilray (TLRY)

While I traded Canopy Growth (CGC) a few times last week, I never got a huge winner. But, as I started watching a similar stock – Tilray – I realized it has a lot of long-term potential.

Let’s take a look at the 130-minute chart to start.

TLRY 130-minute Chart

I love the look of this stock. It almost fits right into my TPS setup. As a quick review, that means it contains three key elements:

Trend – While the stock had taken a larger decline last year, it pushed hard off the base it formed. That created a nice uptrend.

Pattern – Friday’s down move came close to breaking the pattern. However, I still like this consolidation flag.

Squeeze – So far, I haven’t seen the squeeze on the daily chart. However, there’s a nice one forming on the 130-minute chart. This occurs when the Bollinger Bands move inside the Keltner Channel. You can see it from the red dots in the bottom indicator.

However, I still think there’s a play. Let’s back out to the daily chart.

TLRY Daily Chart

The daily chart still has a pattern and trend. However, I need the squeeze to form before I want to hop on board.

So, this is one to keep an eye on. Once the Bollinger Bands start trading inside the Keltner Channel, then I’ll be looking at a potential entry.

What I do like about this stock is its independence. These marijuana stocks tend to trade on their own rather than with the broader market. That gives me the protection I want for a potential downturn.

Twilio (TWLO)

Twilio is a stock that I’m cautiously optimistic about. You can again find my classic TPS setup here as well… and this one looks primed to go.

TWLO 130-Minute Chart

Although this stock has run hard, it’s got a great look to it. There’s a nice uptrend, clean pattern, and a squeeze with momentum turning upwards.

However, there’s a catch with this one. Earnings come up on February 5th. I don’t like to necessarily trade through earnings. Given this is a 130-minute chart, there is a good chance it plays out before earnings.

That’s the trade-off here. It all comes down to timing.

20 Yr+ Bonds ETF (TLT)

This play is a great edition to protect against volatility. Bonds normally trade opposite of stocks. Investors like to park money in treasuries as a safety trade. So when stocks drop, bonds tend to rise. When stocks rise, bonds tend to drop.

Now, let’s look at the weekly chart for bonds here.

TLT Weekly Chart

Anything look familiar here? This is my TPS setup but on a weekly chart. That’s what I love about this system. It works on any time-frame.

Because this is a weekly chart, it can take months to play out. However, it fits within a bigger macroeconomic picture and acts as a great hedge against market fallout.

My only concern here is that the trade may have left the station. Last week’s market action may have been the breakout move. Right now, it’s not at a spot where I want to enter the trade necessarily. But, if I get a pullback to the 8-period or 21-period exponential moving average, then you can bet I’ll be sizing this up.

Want Even More Trades

Last week turned out to be a busy one for me. I found lots of great trades every day. Starting fresh this week, I see a lot of potential for even more.

So how do I find these people trades – TPS setups.

In my upcoming webinar, I talk about how I created my TPS system that turned my $38,000 account into over $2,000,000 in just two years, as well as finding these trades every day.

“I need to let you know I listened to your advice and focused only with Nate Bear setups and studied his material with my under 1K account. The month of November (2019) I was green $425 or 17% with 7 winners and 2 losers. This was my first green month this year.” ~ Dan

The Unprofitable Trader

Newer traders probably haven’t thought much about hedging their positions. They’re more concerned with trying to come up with a good strategy and hitting consistent wins.

By ignoring your bias, you expose yourself to excess risk. I can think of several times when I would keep adding trade after trade on the long side. Then a day like Friday would come around where the market nosedives and all my positions turn against me.

The trick is to balance your trading risk and market risk. If you have a good idea, stick with it. Just know that it might not always work out.

Solution – Use market ETFs to offset your stock positions

My favorite solution for hedging – use market ETF options. I usually have a long-bias in my TPS trading strategy. To offset that bias, I will buy puts on major market ETFs like the SPY, QQQ, IWM, or DIA. This goes directly to the example I provided earlier. If I like Google’s potential, I reduce my exposure to the downside by buying put contracts on the QQQ.

The Breakeven Trader

Problem – I want to optimize my hedges

Sometimes I find myself in trades on similar stocks without even realizing it. If I play too many stocks in the same category, I get sector-specific risk. That means if I hold a bunch of tech stocks that all sell-off at once, using the S&P 500 ETF as a hedge won’t be very effective.

Solution – Use sector-specific ETFs

When I find myself too heavily loaded with one particular market area, I’ll look to offset the positions with the ETF for the sector. For example, if I have a trade in Biogen and Abbot Labs, I can pair these trades with a healthcare ETF to reduce my exposure. This reduces my sector risk and allows the trades to work on their own merits.

However, if you want exposure to the sector, then it’s best to cut down the number of trades in a similar category. Quite often, you’ll see the same setup in related stocks. When this happens, try to pick the best of the bunch.

The Profitable Trader

Problem – I don’t want to worry about adjusting my hedges all the time

Not every trader likes to spend time in front of the computer. I know plenty of swing traders that set their orders at the beginning of the week and then walk away.

The problem they run into is they don’t know which will fill and which won’t as the week goes on. They can very quickly find themselves with too many bullish bets or bearish bets.

Solution – Try market neutral strategies like iron condors

Strategies like short iron condors are great low maintenance trades. Once you put these on, you just check on them periodically for adjustments. These trades involve selling a call and put credit spread on a stock.

With these trades, you want to try to collect 1/3rd the distance of the spreads. For example, if you did an iron condor on a stock with a put credit spread at the $100/$101 strikes and a call credit spread at the $110/$111 strikes, you should try to collect $0.33 for the trade.

Ideally, you want to put these trades on when implied volatility is high and about 45-60 days out from expiration. With stocks, I try to avoid taking trades that go through any earnings announcements.

Putting It All Together

I won’t lie to you and say it’s easy to learn how to hedge your positions effectively. It takes time and practice. That’s why a good trade journal is critical. Your journal tells you what works and what doesn’t.

It took me years of practice before I finally learned how to turn a profit consistently. Journaling was a huge part of how I turned it around.

In my upcoming webinar, I talk about how I moved from an unprofitable trader to finally taking my $38,000 account and turning it into over $2,000,000 in just two years.

This is something you can implement in your trading. It’s much easier than you might think.

Comparing Bollinger Bands and Keltner Channels

Before we begin, I want to briefly give an overview. Both of these indicators measure some aspect of volatility. They just go about it differently. I’m giving you the setups that I use. However, feel free to play around with your own.

Bollinger Bands

I previously wrote about Bollinger Bands in my weekly newsletter. They’ve become a staple to my trading strategy.

In case you didn’t get a chance to read the article (or as a quick refresher), Bollinger Bands measure two standard deviations of price movement based on a rolling period (most traders use the last 20 periods). Two standard deviations tell you the mathematical range price is expected to land in given the number of bars back selected.

This means that based on the last 20 closes of whatever time frame you’re looking at, there’s a 95% probability price will land within the Bollinger Bands.

It’s important to remember that this is only a probability calculation. Also, it only looks at the close and not the entire candle. You’ll often see price slip through the Bollinger Bands only to bounce back.

Now, as the price range narrows, so do the Bollinger Bands. This tells me price is tightening up relative to its history. But, I need something more to give me a clear sense of timing. That’s where the Keltner Channels come in.

Keltner Channel

Keltner Channels work similar to Bollinger Bands, but with some key differences. First, the centerline is an exponential moving average. The lookback period is the same as the Bollinger Band using the last 20 bars.

It then figures out what’s known as the Average True Range (ATR). This looks back over the same number of periods and for each bar figures out the following:

Maximum amongst:

Current day High – Low

The absolute value of the current day high minus the previous close

The absolute value of the current day low minus the previous close

Lastly, it multiplies it by some value (normally 1.5), then adds and subtracts it to the EMA.

For example, if the 20-period EMA is $100, and the ATR for the same period is $10, then the Keltner Channel would be $100 +/- ($10 x 1.5) = $85-$115.

Unlike Bolinger Bands, the Keltner channel uses an exponential moving average and looks more at the actual trading range history.

So, you’re getting a look at Bollinger Bands that use statistical outputs and Keltner Channels that measure actual trading ranges.

How to Interpret the Squeeze

Now for the good stuff. The squeeze occurs when the upper and lower Bollinger Bands trade inside the Keltner Channel. It would look something like this.

What we’re looking at is when statistical outputs say that the trading range is inside what is effectively the actual trading range. It’s like predicting the patriots to score two touchdowns every game when they’ve been consistently scoring 24.

We want to see price then ‘explode’ out of the trading range, where the Bollinger Bands expand outside of the Keltner Channel. This is what we call it when a squeeze ‘fires.’

Playing the Squeeze

The key I found with the squeeze is putting it together with other trading signals. For me, that includes a strong uptrend and a consolidation pattern – hence my TPS setup. I want to enter a trade where all three of these elements are present. Then, I wait for the squeeze to fire.

Most of the time I will play the long side of stocks. That means I look for trades near their highs that look ready to explode higher.

However, like a piece of abstract art, show two traders a chart, and they’re likely to tell you about two different patterns they see.

What can I say, charting is both an art and science.

For years I struggled with accepting that.

I wanted to be perfect in identifying chart patterns. That is until I realized something profound…

…Perfection was holding me back!

You don’t need to be perfect at pattern recognition— just good enough.

All chart patterns boil down to three types: reversal, continuation, and consolidation.

That’s where my epiphany came in…

Describing Chart Patterns

Each of the three types of patterns works with some element of price and movement in the chart. The easiest way to think of them is like your middle school physics class.

Imagine I hold a rubber ball in my hand. If I throw that ball in the air, at some point, it slows down. Then it stops and drops. Or, imagine that I bounce it off the ground. It ricochets and comes back towards my hand. Essentially, that’s what happens with reversal patterns.

You describe reversal patterns the same way you would describe throwing that ball. Most reversal bottoms are marked by violent, ‘V’ shaped turns that require a lot of force. Conversely, most tops arc on softer energy before reversing.

The ball analogy is meant to help you visualize how to describe the actions of the stock movement (not to be an exact analogy). That’s how we fit chart patterns into the three categories.

So let’s start with reversal patterns.

Reversal Patterns

Most reversal patterns contain two major elements:

Support or resistance level

Candlestick pattern/formation

A common reversal pattern is an engulfing candle, and one I’ll use for demonstration purposes. This occurs when one candle’s body encompasses the whole of the previous candle.

This is what it would look like for a reversal off the bottom.

The green candle engulfs the previous candle. This is a signal that price wants to reverse. However, this doesn’t make sense at any arbitrary point in the chart. Let’s say this particular bullish reversal occurred near the highs. Does that make sense?

Not really. Why would a stock need to reverse when it’s near the highs? These patterns only make sense in context. So, this pattern should only work when reversing a downtrend.

This is what the pattern would look like at a top for a reversal.

Looks like the same image with the colors flipped and the image upside down.

Now, here’s a slight variation. This is still a bullish engulfing pattern.

It looks a lot different than the other two. But, let’s describe what’s really going on here.

The primary candle’s body ‘engulfs’ the previous candle’s body.

It reverses a trend

The pattern only makes sense in context.

That’s really it. Everything else is just noise. Don’t make things more complicated than they already are.

Continuation Patterns

Think of continuation patterns like you were throwing the ball to someone who was standing at the top of the stairs. When you throw the ball, it goes over their head a little bit. Then they catch it and get ready to throw it again.

Basically, that’s a continuation pattern. These patterns look for areas of ‘rest’ within a chart. They take a trend that already exists and give it a chance to catch a breather.

I use continuation patterns all the time in my TPS setups. Let me give you an example.

Here’s a trade I recently took in AMD.

AMD 130-Minute Chart

I want you to focus on the two orange lines forming a ‘triangle.’ This is a common chart pattern for consolidation. In fact, most consolidation patterns work off some sideways action and a compression in the trading range.

However, the context here is important. The continuation pattern only works if it’s continuing a trend. If I try to play this in a choppy chart, it’s bound to fail. That’s because, like a bullish reversal near the highs, it doesn’t make sense.

Consolidation Patterns

I won’t spend too much time on consolidation patterns as they don’t have a lot of definition around them, and are mainly setups to other price action. But, think of them as a broad category for stocks that trade in a range.

Consolidation patterns mean that the stock has stopped moving in a trend and remains in a range. This range can be expanding or compressing.

Continuation patterns can be consolidation patterns. If you look at the AMD triangle pattern, it’s certainly a consolidation pattern. However, not all consolidation patterns are continuation patterns.

Traders I know that work with consolidation patterns tend to play ranges. They work with stocks that bounce back and forth. Consolidation patterns themselves are a bit easier to understand in the right context. But, when you find one in a choppy chart, it’s hard to say whether it’s changing or continuing a trend.

My advice, unless you’re already good with these, stick to the other two.

Incorporate Patterns Into Your Strategy

Earlier, I referred to my TPS setup. You probably noticed that pattern makes up only one aspect, the other two being a trend and squeeze in price.

I created this system after analyzing charts and working through my journal for the better part of a decade.

In the end, I turned $38,000 into over $2,000,000 in two years. You can learn about the steps I went through in a recent training session. I explain how I went from an unprofitable trader to a RagingBull guru.

Let me tell you – it isn’t easy to find massive winners like this. But I have a few stocks on my radar that I think could provide some explosive profits in the coming week.

Spend some time with the family on Monday see you can get to your charts early on Tuesday morning and kick off this trading week.

Lamb & Weston Holdings (LW)

Maybe you are old enough to remember Saved By The Bell middle school episode where Zach and the gang lost a lot of money on potatoes. They were missing a TPS set up on a potato supplier like Lamb & Weston.

A friend of mine recently brought this chart to my attention, and I really love this setup. This fits a classic TPS strategy with a fantastic risk-reward.

LW 130-Minute Chart

Here’s what I see when I analyze this chart for my TPS strategy:

Trend – I see a clear trend that is preceded by an explosive move higher in the stock off the back of its recent earnings.

Pattern – The upper trendline connects the highs of the candles in a descending fashion. Underneath, the low points are connected in a slightly ascending trend. This creates a triangle consolidation pattern.

Squeeze – At the bottom, there is a series of red and green dots. The red dots indicate a squeeze when the Bollinger Bands move inside the Keltner Channel indicator. This is where I want to enter. When it turns green, the energy from the consolidation is released.

Here’s what I especially like about this trade – normally I stop out when the squeeze releases and the pattern breaks.

Because price is so close to the lower trendline, the amount it could fall relative to a breakout above the pattern is tiny. That means it gives minimal downside risk with a lot of upside potential.

With implied volatility extremely low across the board, I’d look to play this trade with call options. Since I’m using the 130-minute chart, I’d go out about two weeks with the expiration period.

Twillio (TWLO)

This trade fits more with Jeff Bishop’s money pattern than my TPS setup. However, I think the chart is worth discussing for a trade idea this week.

Twilio ran higher for nine days straight before finally having one down day. However, that apparently was enough to stop this relentless uptrend dead in its tracks.

Here’s what I’m talking about on the daily chart.

TWLO Daily Chart

The previous lows from where the stock found support on its drop now act as resistance. Before that, the same level acted as support on the way up. So, when the stock ran into this level, it reversed.

Now, let’s break it down to the hourly timeframe.

TWLO Hourly Chart

I highlighted the recent moving average crossover in yellow. Jeff calls this the ‘money pattern’. It occurs when the 13-period simple moving average crosses over or under the 30-period moving average on the hourly chart. Here it crosses below, while at key support.

So, this setup tells me the stock wants to trade lower. However, I want to be cautious in such a bullish market. I can either play this trade with long put options or selling a call credit spread.

If this stock closes above the previous highs, then it’s broken resistance and the trade is over.

Kinder Morgan (KMI)

This chart isn’t the cleanest TPS setup, but it has some potential. KMI’s 130-minute chart looks pretty decent here.

KMI 130-Minute Chart

Typically, I want a larger move than we saw recently to create a trend. You can see how the first move led to a consolidation and a squeeze that fired higher into the current pattern. However, I do like that the current squeeze is preceded by a squeeze that worked out to the long side.

Now, the red bars at the bottom indicate the momentum has shifted to the downside. So, I’d probably wait on this one before stepping in. I want to see things consolidate longer and shift direction. That would give me confidence the uptrend isn’t over.

Learn how I developed my TPS strategy

I get a lot of questions about how I created my TPS strategy. It wasn’t something I discovered overnight. It actually took 8 years.

In the end, I turned $38,000 into over $2,000,000 in two years. You can learn about the steps I went through in my upcoming webinar. I explain how I went from an unprofitable trader to a RagingBull guru.